Auditors are unparalleled for their roles and duties in an organization. Any organization involves tedious accounts irrespective of their location. Thus the protection of the financial condition of the organization by auditors is required. Considering the significance of their roles, companies act has been established. The laws help in managing the provisions associated with auditing.
No organisation or business performs well in the market without the help of an auditor. Know on Appointment of Auditors. The auditor is needed for any organisation to present the financial information or the condition of the firm. As auditors are obliged to laws and regulations, they help the company in complying with the Indian tax laws. Thus the role of the auditors is for the best of the company’s interests. The article throws light on the significance of the role and the impact of the Companies act related to auditing.
Why Do We Need Auditors?
Any company carries out its daily operations to reach its mission and vision. During the process, these companies tie up and involves with other firms financially. This way the firms conduct business. Thus, there are chances that the company end up facing risks during the transactions or might miss up in tracking the accounting. Thus, the board of directors of the company emphasizes the Appointment of an auditor.
Auditors are trained professionals and constantly look for the pitfalls a company might face. They understand the potential bottlenecks that arise during the business. Also, the governmental authorities might question the company if they step into illegal activities. The company might not be aware of its steps. thus The role of an auditor is to verify the accuracy and genuineness of the business operations.
The loans and advances of the company can be assessed by the auditors. Similarly, the account books, vouchers, and loans of the companies are taken care of. On the other hand, the banking company might have a lot of shares, securities, and other assets of the company must skilled professionals. After every financial year, auditors make a report based on the accounting and auditing standards. The auditors thus provide a fair view of the company’s state.
Impact of Companies Act Over Auditing
The company act come into existence in the year 2013 and has been governing the regulations related to secretarial audit since then. The company act enforces the companies to appoint auditors within 30 days from the date of incorporation.
The government has laid regulations related to the type of company. Thus, the companies are expected to prepare the financial statement. This statement must imbibe with the regulations. This process of formatting the financial affairs of the company is tedious and requires a skilled auditor.
The Companies Act Demands the Organisation to Provide the Following Details
- The financial statement must include the profit and loss accounts. If the organization is a non-profit organization, it must include the income and expenditure details. Drafting the financial statement to determine the financial condition is an overwhelming process. It includes the nature of the account, recording basis, and transactions. These transactions are related every year including in previous years.
- Shares and related documents of the business.
- Companies act also creates an impact on the “appointing of the auditors” for the company. To regulate the company’s financial condition, the law expects the organization to appoint a Chartered account. The company might also appoint a firm that can manage the financial aspects of the company within 30 days.
How Does the Company Act to Deal With the Appointment of Auditors
There are different types of companies that operate differently in terms of financial and ownership. Therefore the company act enacts different procedures and regulations. These regulations are related to appointing an auditor.
- Non-government companies: They do not belong to the government. They operate without the intention of making profits for the owners. They focus on the welfare of society and promote social change and work for the improvement of the communities. The company act demands the board of directors to appoint an auditor within 30 days from the company registration date. The members of the directors recommend the auditor for the company. Then, the company chooses the desired professional within 3 months of their recommendation.
- Listed or specified company: If the company is a listed company, then the company act demands the company to appoint the auditor for a consecutive 5 or 10 years.
- Government Company: If the company is governed by the government authorities, the appointment process is done by the comptroller within 60 days from the registration date.
Casual Auditor Vacancy
The Board of Directors must fill any unexpected vacancy in the position of auditor within 30 days. The appointment of the auditor must be authorised at an Extra-Ordinary General Meeting called within three months after the Board’s recommendation if the casual vacancy is caused by the resignation of an auditor.
Rotation of Auditors
Auditors are like other employees of the organisation. Their skills and educational qualifications are analysed by the authorities. But company’s act emphasizes the rotation in their appointment. For the limited company or a specified company, auditors cannot be working for the same firm for more than 5 years. Similarly, after their term of 5 years is completed, they can’t be re-appointed for the same firm.
The company act has laid regulations related to the rotation of the auditors. Following these regulations enables the firm to regulate its financial operations. For instance, the regulation concerning the rotation of the auditors is crucial. The internal auditing firms shall not exercise relations with the outgoing auditors. Moreover, if the auditor or the firm of auditors takes a break during the 5 years, the break will be considered.
Re-Appointment of Auditors
Re-appointment of the auditors is done at the annual general meetings. However, the firm can also continue relations with the same auditor or firm of auditors if no new arrangements are made. The firm first analyses the eligibility of the auditor for re-appointment.
The auditors can issue a notice of un-willingness to the company for personal reasons. Thus, the firm will consider those reasons while considering the re-appointment of the auditor or the firm. If the existing auditor does not pass notice to the firm about his unwillingness or any concern, the firm will consider the auditor to proceed with the firm.
When the Auditor Retires
According to the law, the company is expected to send the representation copy. Also, the time duration should be provided for the company to get them circulated across their members.
Also to remove an auditor, reasons stating the inappropriate conduct of the auditor should be mentioned. Thus the firm has to discuss with the Appointment of Auditors, re-appointment, and removal norms.
Conclusion
The role of the auditor is essential to assess the financial records and monitor the activities of the firm in regulating the Indian laws.
The auditor also checks the regulations of Indian tax laws. Running an organization, and abiding by the laws and regulations in terms of appointing or resignation of the auditor could be overwhelming. Taking help of the professionals like Vakilsearch, in this case, helps a lot along the way.
